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OPINION

Bangert: 'Bet on a Boiler'? What's the catch?

Purdue University President Mitch Daniels testified before a congressional committee, calling for more room for universities to innovate when it comes to college costs and student debt.(Photo: Journal & Courier file photo)

Has the phrase "indentured servant" been used as much on campus — outside, maybe, an upper-level American Colonial History course — as Tuesday when Purdue University President Mitch Daniels floated his "Bet on a Boiler" idea to a U.S. House subcommittee?

Actually, income share agreements, in which investors kick in money to pay for a student's college years in return for a cut of future income, aren't exactly a Daniels brainchild. The notion dates to the 1950s and, before Daniels chimed in, already was enjoying a small but swelling revival in higher education circles.

And, actually, despite the facetious name he tossed out this week, Daniels said he doesn't consider this a mere bet, at all. He said he considers fronting money to a Purdue student looking for a different way to pay for passage through the college years would be a fairly safe investment.

As for indentured servitude, the instant, two-word commentary heaped on the plan as soon as word started getting around about Daniels' testimony?

"Actually, that's just silly," Daniels said Wednesday night, while grabbing a bite to eat in the spring-break slow West Lafayette Village after returning from several days in Washington, D.C.

"Right now, if you need help paying for school, you're already paying someone back. It's just a question of who you're going to be obligated to," Daniels said. "What we're really talking about here is about giving us a chance on campuses to innovate and think of new ways to deal with the cost of a college education. It's just an idea I was using as an illustration of that. That's all."

But if the novelty of income share agreements is the key that opens that bigger discussion as Congress considers reauthorization of the Higher Education Act, which covers a host of university regulations, financial aid and student debt issues? Daniels said he's fine with that.

"And I can understand if people are asking, 'What's the catch?' " he said.

Right now, the first catch is that recent graduates are swimming in debt.

According to an analysis by Edvisors, a site that tracks planning and paying for college, the class of 2014 was the most indebted in U.S. history. Slightly more than 70 percent of the class graduated with student loans to pay back. Those 70 percent were carrying an average student loan debt of $33,000. That figure in 2000 was less than half that amount.

The threat, as Daniels put it to Congress this week, is a question growing louder: Is a degree really worth it?

In a soft economy that doesn't guarantee a position worth that sort of investment, Daniels keeps pressing: What can universities do to make sure the answer remains yes?

In Washington, Daniels pounded a theme familiar since he arrived on the West Lafayette campus in 2013. Universities have to make the first move. For Purdue, that meant student affordability comes first, central to a series of tuition freezes — now heading toward a third year — and moves meant to lower room, board and textbook costs.

For Congress' part, Daniels asked for help to cut down university regulations that cost campuses millions of dollars in compliance work. And he suggested adjusting financial aid rules so money could follow students in the new Purdue Polytechnic Institute, a program based on student's mastery of a subject rather than a traditional progression of semesters.

Those didn't make the same sort of waves as the former Republican governor's endorsement of bringing the investor class to the student aid table.

So what's the catch?

That's something Congress wasn't able to work out in 2014, when Sen. Marco Rubio, R-Florida, and Rep. Tom Petri, R-Wisconsin, introduced legislation that would have laid out ground rules for income share agreements. Rubio's bill would have capped the number of years at 30, the percentage of future income at 15 percent and set a $10,000 minimum for income that would have been exempted.

Where actual income share agreements would land — whether in number of years or the percentage of pay earned over a certain guaranteed minimum take-home pay — would have been left to student-investor negotiations.

There's a market apparently waiting. As Rubio's bill stalled, Upstart — a peer-to-peer lending company looking to crowd fund higher education for students willing to essentially sell shares of their future income — backed away from income share agreements because the regulations and liabilities for both borrowers and investors were unclear.

And odd alliances have emerged. Richard Vedder, with ties to the conservative think tank American Enterprise Institute, wrote a March 12 piece in Forbes touting the potential of income share agreements. Beth Akers, with the left-leaning Brookings Institution, did the same in an October 2014 analysis: "(Income share agreements) may not be the silver bullet that will solve all of our collective concerns, but they should have a place in the landscape of services …"

The real gamble might belong to an incoming student, instead of investors, who might be able to put together a portfolio of student borrowers to minimize risk.

David Bergeron, an education expert with the Center for American Progress, a liberal think tank, told Reuters in April 2014 that income share agreements should come with cautions that investors could find ways to "rig the game" so some graduates wound up paying long after conventional student loans would have been paid off.

Daniels said he takes that all as fair criticism.

"I think this is something that will work for us in time," Daniels said. "It also fits the ethos of our alumni. So many feel they got their big break at Purdue."

He pointed to the growth in the number of alumni giving to what Purdue categorizes as student support. Those donations reached $54.6 million in 2014 — $14 million more than in 2013 and the first time that Purdue raised more than $50 million for student support in one fiscal year, according to Amy Noah, vice president for development.

Will Congress bite?

Todd Rokita, an Indianapolis Republican whose district includes Purdue, said: "I have great respect for President Daniels as a conservative thought leader, and I certainly find this idea interesting and worth exploring."

Sen. Joe Donnelly, a Democrat, was more cautious.

On Wednesday, Donnelly and Sen. Tim Scott, a South Carolina Republican, introduced the Empowering Student Borrowers Act. The bill, as pitched by Donnelly, would create a clearinghouse of best practices when it comes to college lending, reducing debt loads, and making sure students and families understand the payment schedules they face.

The question to Donnelly: Do you see Daniels' idea making the cut?

"I don't know if it will become a best practice," Donnelly said. "Before I make a final comment on it, I'd like to see what all the moving parts are."

And there are plenty of moving parts to fit together — even after the indentured servant and sharecropping accusations are duly noted.

"Understood," Daniels said. "All we're asking here is, open up the possibilities to do something new, something innovative. … I like us to be associated with innovative ideas. They're not all going to work. But give us the chance to try. That's the theme here."